The Co-operative Group is selling off its life insurance and asset management business to Royal London in a deal valued at £219 million.

The deal will lift Royal London's assets under management from around £50 billion at present to around £70 billion.

Co-op is also reported to be considering further asset sell offs to meet a reported £1 billion capital shortfall which has threatened its proposed buyout of 632 Lloyds branches under Project Verde.

Royal London, the UK's largest mutual life and pensions company, has signed a sale and purchase agreement with Co-op in which £180 million of the total sale price is deferred, linked to assets held within the life business.

The deal, which is subject to approval from Royal London shareholders, and will be put to a members' vote at an extraordinary general meeting later in the year, is expected to conclude later in the year.

If approved, Royal London's customer base will grow by around two million to six million in total.

Phil Loney, group chief executive at Royal London, said: “This acquisition will be both a great opportunity and a perfect fit for our business. It brings together two like-minded organisations and builds on our experience of similar transactions and our customer centric focus.

“It strongly supports our strategic goal of offering a financially strong, vibrant and modern mutual alternative in the UK life assurance and long-term savings market. It also provides us with a new revenue stream and increases the expertise within our business.

“I believe this transaction to be of long term benefit to our members. We will be writing to them in the very near future to explain in full the benefits of the acquisition and ask them to support it.”

Co-op is also reported to be considering other asset sales, which could see it offloading its non-life insurance business in an effort to further boost its capital strength.

Commenting on the Royal Life deal, The Co-operative Banking Group's chief executive, Barry Tootell, said: “This decision reflects changes in the life assurance market and our focus on developing a compelling co-operative offer for our millions of customers and members.

“The completion of this agreement is expected to generate a significant release of capital.

“The transfer of our life assurance and asset management businesses to Royal London will ensure the continued protection of our policyholders, within a strong, mutual business with the necessary scale and focus on the long-term savings sector.”

Last July Co-op agreed terms with Lloyds for Lloyds' Project Verde branches in what was a heavily discounted purchase agreement, with Co-op agreeing to pay £350 million up front with a further £400 million on performance targets being met up to 2027.

Under the terms of the deal, Lloyds had also agreed to provide £1.5 billion to capitalise the branch network, which has 4.8 million customers and 7,000 employees, and which are to be spun out under the Lloyds TSB brand.

Problems with the deal were raised publicly last month, with Lloyds reported to be considering a stock market flotation for the branches should the deal fail.

Co-op is reported to be in discussions with regulator the Financial Services Authority over issues including the capital position of the enlarged banking division.

Co-op is expected to provide an update on the Verde negotiations when it publishes its annual results at the end of March.

Lloyds is being forced to sell the branches by the EU in return for more than £20 billion in taxpayer-backed bailouts.

The EU has demanded that the sale of the branches – which represents six per cent UK market share - is concluded by November 2013.

If the deal concludes, Co-op's branch network would swell to nearly 1,000, representing nearly seven per cent of the UK retail banking market.

Co-op currently has around two per cent of the UK current account market with 345 branches managing £45 billion in assets.

Royal Bank of Scotland, which is also being forced by EU regulators to offload 316 of its branches in return for its £45.5 billion taxpayer-backed bailout, saw a deal with Santander collapse at the end of last year.

The Spanish banking giant blamed problems with the RBS IT system.

RBS is now considering a stock market flotation of the branches in a project it has codenamed Rainbow.